As reported in the condensed consolidated half-year financial statements, at 30 June 2020 the Group had a strong liquidity position of €40.9 billion (cash, cash equivalents and available-for-sale liquid financial assets at gross value, including securities transferred under repurchase agreements which amounted to €6.5 billion in the first half of 2020 in the context of the Covid-19 pandemic), and unused credit lines with banks amounting to €10.9 billion (see notes 23.2.3 and 23.3 to the condensed consolidated half-year financial statements).
At 31 December 2020 the Group had a strong liquidity position of €32.4 billion at gross value (cash, cash equivalents and available-for-sale liquid financial assets, including unused credit lines with banks amounting to €11.1 billion (see notes 18.4and 19.2).
The Group calculates impairment of trade receivables by reference to provision matrices based on credit loss histories (the IFRS 9 simplified approach).
Despite the support measures introduced by national governments, and the support measures put in place by the Group for its customers, the Covid-19 pandemic should result in an increase in the amount of non-recoverable receivables which was not yet very visible at 31 December 2020. The risk analyses conducted by different Group entities have led to a €223 million increase to impairment of trade receivables resulting from the pandemic, under other operating income and expenses in the income statement. This amount comprises €80 million concerning the France– Generation and Supply segment, €58 million for the France – Regulated activities segment, €68 million for the United Kingdom, and €13 million for Belgium. The credit risk on EDF Trading’s portfolio was also increased by an amount of €22 million inSales (Trading).
This increase in impairment results primarily from the fact that the provision matrices habitually used are applied to a broader base of receivables in the portfolio reflecting longer payment times as a result of the pandemic, particularly in the Business customer segment in France, and the United Kingdom. It is also explained by adjustments made to the provision matrices via post-model corrections to take account of the specific situation brought about by the Covid-19 pandemic which was not reflected in the existing models. To determine these corrections, differentiated approaches were introduced for each country and customer type (residential customers and business customers by industry sector).
In France, in the Residential customer segment, the increase in the credit risk remains moderate at this stage (as most of customers in the portfolio pay by direct debit and so far no increase in debit rejections has been observed; also, support measures for customers in difficulty have been introduced). Nevertheless, corrections were applied, by increasing the provision rate for all doubtful trade receivables arising since the start of the pandemic that are considered at greater risk of becoming non-recoverable than the receivables less than 12 months old used to construct the existing provision matrices, and by increasing the provision rate for current receivables, notably based on an INSEE (French statistical office) study of October 2020 of the economic consequences of lockdown on household finances, taking account of prospects of arise in France’s unemployment rate following the Covid-19 pandemic.
In the Business customer segment, at the top end of the portfolio (large customers),case-by-case monitoring referring to external credit ratings did not indicate any material increase in the credit risk. At the bottom end and middle of the portfolio(small and medium-sized businesses, very small businesses), provision matrices were corrected for the business sectors in this portfolio deemed to entail the highest risk, in order to reflect a probable increase in the default rate (based, among other things, on external macroeconomic forecasts, for example publications by credit insurance companies such as Coface or Euler Hermes). The data available at the year-end instead suggest that the level of default observed by businesses is in fact lower in 2020 than the previous year; this is attributed to a “delay effect”. The forecast default rates used at the year-end therefore incorporate the likelihood of an increased risk in 2021 in the expected credit loss.
In the France – Regulated activities segment, the increase in impairment of trade receivables primarily reflects the risk on the delivery component of the invoice to the final customer.
In the United Kingdom, a similar approach was used, separating Residential and Business customers and referring to portfolio and business segments as appropriate to the country’s situation. In particular, the probable increase in the default rate for businesses is considered to be higher than in France.
In Italy, in view of non-recourse assignments of receivables and credit insurance agreements, the increase in the credit risk is considered low.
Some group entities make use of non-recourse assignment programmes for trade receivables. The assignees in the programme have not tried to renegotiate any contractual clauses that would affect the non-recourse nature of their contracts.
The Covid-19 pandemic and the emergency measures introduced by France’s public authorities from 17 March 2020 led to a decline in electricity consumption by non-residential clients that affected all market players, including EDF.
Faced with this decline in electricity consumption, some suppliers wanted to reconsider their contractual commitments, citing force majeure to reduce the volumes they had purchased from EDF in November 2019 under the ARENH mechanism.
Confirming the French Energy Regulation Committee’s (CRE’s) decision of 26 March, on 17 April the French Council of State rejected an appeal filed by two energy supplier associations, considering that the losses incurred by the energy suppliers concerned were not “such that they would jeopardise (…) the survival of the businesses over a horizon of a few months” and that “these losses would have such an impact during the timeframe required by the competent judge to make a ruling on the claims”.
On 20, 26 and 27 May 2020, after summary proceedings the Paris Commercial Court ruled that the introduction of emergency measures by the French government constituted a force majeure event for the ARENH contracts with Alpiq, Gazel and Total Direct Energie, entailing suspension of those contracts. On 28 July 2020, the Paris Court of Appeal upheld the urgent application judge’s decision. EDF has appealed against this ruling. Total Direct Energie is the only remaining party in the ongoing proceedings.
On 2 June 2020(1), EDF notified the energy suppliers Alpiq, Gazel and Total Direct Energie of the termination of their ARENH contracts, as allowed when these contracts are suspended for more than two months. This decision was made as a precautionary measure to protect EDF’s rights.
A challenge to this termination was taken before the urgent applications judge, who issued a ruling concerning Total Direct Energie on 1 July 2020 that temporarily suspended the effects of EDF’s contract termination letter. On 19 November 2020 the Paris Court of Appeal overturned that ruling and restored the effects of the termination notified by EDF on 2 June 2020.
In the meantime, three energy suppliers notified EDF of the end of the force majeure event in mid-June and ARENH deliveries resumed. As the CRE did not allow EDF’s request to suspend ARENH deliveries to Total Direct Energie for the end of the year, in application of the Paris Court of Appeal decision of 19 November ,on 10 December 2020 EDF brought a claim before the Council of State for abuse of power, requesting cancellation of the CRE’s decision.
The suspension of deliveries to these three suppliers for approximately 15 days (from the ruling by the Paris commercial court in summary proceedings, to the notification of the end of force majeure by the suppliers), and the continuation of deliveries to Total Direct Energie, represents some tens of millions of euros in lost income for EDFat 31 December 2020 (due to the price effect of volumes being sold at market prices instead of ARENH prices during that period).
Further summary proceedings were initiated in late September 2020 by Ohm Energie, seeking a suspension of payments due for ARENH volumes, claiming that deliveries had been continued illegally by EDF since it had requested suspension of ARENH deliveries from April to June 2020 due to force majeure. On 23 October 2020 the Paris Commercial Court rejected all of Ohm Energie’s claims.
(1) See the press release of 2 June 2020: EDF has notified three energy suppliers of the termination of their ARENH contracts.
